For someone interested in real estate investing, buying apartment buildings and earning rental income from them is a very good proposition. However, this strategy is not suitable for every investor. This is why it is important to understand all aspects of this method of real estate investing before taking a plunge. Here are some top things to keep in mind when planning to invest in apartment buildings.
Location is most important
Buying an apartment building with help from a lender is easy but if the location is not good, all your money can easily go down the drain. You will find it very difficult to attract renters if the building is situated in a remote location away from amenities and means of mass transportation. The location is not considered good if the tenants the building attracts are of bad quality. If this is the case, you will experience one problem another in the form of nonpayment of rent, damage to property, and possible evictions of tenants. Of course, you must pay a higher price for a building in a good location. But you also earn higher rental income from such a property.
Occupied or vacant property
Many investors feel happy when they are told and see most of the units occupied by renters in the building they are going to buy. Occupied property with existing tenants is not a bad proposition if these tenants are of good quality. But in most such cases, the listing agent or the owner fill up the apartments with all kinds of tenants just to show that the occupancy rates are high. Therefore, it is important to check out the lease agreements of the tenants before taking a decision in favor of buying.
If you have several options in terms of apartment buildings in different locations, you must check out the profiles of their owners. Do you find a motivated seller in there? If yes, then this owner is your best bet of securing a deal at attractive prices. This is because he is highly motivated to sell the property and would accept a lower price just to get rid of it. Whether he is going through a bad financial phase or obtaining a divorce, you will find that dealing with a motivated seller is always going to be beneficial for you.
Don’t fall prey to cheap price tag
You will often come across apartment buildings being offered at much less than their fair market value. Of course, you are on the lookout for such apartment buildings, but you also need to take a look at their condition. If a building is in a poor shape and would require loads of money to make it rent ready once again, it is better to stay away from such a deal. You do not want to overspend on a property in the initial phase as there is a limit to the amount by which you can increase the monthly rent. Do not fall prey to very low prices as they are the trap set for buyers. A total rehab building will rarely, if ever, make for a profitable real estate investment.
Do some homework before buying
It is easy to feel tempted to buy an apartment building when you find that it is in a prime location and also in a good condition. You become satisfied when you the building also has existing tenants. You should ask yourself what the need is to sell such a good property when it is earning good rental income for the owner. Therefore, it is important to take a close look at the financial statements provided to you by the seller. Go through the lease agreements of individual tenants to do your math to arrive at the estimated rental income from the property.
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